The unavoidable tax benefit

Law 2155 of 2021 (last tax reform) introduced a substantial change in fiscal transparency in Colombia, by fully regulating the beneficial owner regime. The purpose of this regulation is to show, by companies or unincorporated entities and their administrators, who are the real owners of the wealth in the country and to report all the information about them in a Single Registry of Beneficial Owners (RUB) to be managed by the Dian.

This initiative is good and is in line with the tax transparency trends outlined by the OECD, an organization of which Colombia has been a member since April 2020. However, the regulation that the Dian intends to make of such figure, in order to prevent tax abuse, could constitute -in itself- an abuse. The purpose of this column is to analyze an aspect that, if left as the Dian intends, would cause a stampede of international investors in Colombia and a situation of economic panic and anxiety in the business ecosystem.

The draft Resolution circulated by the Dian a few days ago, which regulates article 631-5 of the Tax Statute (definition of beneficial owner) established, in its article 20, that "the abuse in the obligations to report the information referred to in this resolution shall be understood as tax profit obtained by the legal person, structure without legal personality or similar (...)". Tax advantage, as defined by paragraph 3 of article 869 of the Tax Statute (general anti-abuse rule) is understood as "the alteration, distortion or modification of the tax effects that would otherwise be generated in the head of one or more taxpayers or beneficial owners, such as the elimination, reduction or deferral of the tax, the increase of the credit balance or tax losses and the extension of tax benefits or exemptions".

The connotation of tax benefit of not reporting the information of the beneficial owner is anti-technical and could be vitiated of nullity for being issued in violation of the rules on which they should be based, since such circumstance may well be due to the absolute impossibility of reporting the beneficial owners.

As an example of the above, consider the case of a non-profit foundation that helps to feed low-income children, are the low-income children reported as final beneficiaries, or the founders, or if they are deceased, their heirs, or the legal representative of the foundation? Or in the case of a branch of a foreign company owned by a foreign private equity fund, which is not willing to disclose such information or its contracts, are the final beneficiaries reported to the investors of the fund, or to the managing partners, or to the administrator in Colombia?

The assimilation of the impossibility to report with a tax benefit is not immaterial, on the contrary, it is an indispensable element for the Dian to be able to re-characterize or reconfigure a tax operation or remove the corporate veil of the company, as established in Resolution 4 of 2020. For this reason, cases in which it is evident the impossibility of reporting such information should be excluded from being considered as tax profit, because as the well-known general principle of law says "no one is obliged to the impossible".